President Lee Myung-bak told the Cabinet on Monday to look into the feasibility of a free trade agreement with China. "China has been growing rapidly and market conditions are changing quickly, so we must be prepared to deal with these conditions effectively and flexibly," Lee said.
While the U.S. and Europe reeled from the impact of the global financial crisis, the Chinese market has been growing at an alarming rate. Taiwan, which competes with Korea in semiconductors, mobile phones and digital TVs, is set to sign an Economic Cooperation Framework Agreement with China. A Korea-China FTA would also pressure Washington to ratify the trade pact it signed with Korea back in 2007. In a recent interview with the Washington Post, Lee said it was "just a matter of time" before Korea and China open negotiations for an FTA.
Last year, Korea's trade with China totaled US$141 billion, accounting for 20.5 percent of Korea's total trade and more than the amount of trade with the U.S. (9.7 percent) and Japan (10.4 percent) combined. But although several joint studies of the effects of a Korea-China FTA have been conducted since 2004, negotiations have yet to begin.
The reason for the weak momentum is fear that the deal could have a devastating impact on Korean farmers and the light manufacturing industry, while China's rapid developments in technology minimizes the potential benefits for Korea's IT and automotive industries. In contrast, China has been very aggressive, even offering to take out all sensitive goods, including rice, from the list of negotiations. China's interest appears to stem from its competition with Japan in efforts to dominate the Asian economic sphere.
Under these circumstances, the Korean government must approach the FTA from a broad perspective of eventual regional economic integration like the EU, rather than as a matter of siding with the Chinese or Japanese governments. What is needed is a long-term strategy that can maximize Korea's national interest by focusing not only on short-term economic benefits but on the country's political, foreign affairs, security and trade outlook.